Subscribe to Hanung Toys IPO: India Infoline

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Hanung Toys and Textiles, a manufacturer and exporter of stuffed toys and home furnishings, is open for subscription with a public issue of 95-lakh equity shares of Rs 10 each through a 100% book-building process.

The price band ranges between Rs 85 and Rs 95 per equity share. The net issue to the public is 90 lakh equity shares forming 35.73% of the post issue paid up capital of the company.

Karvy Investor Services and Anand Rathi Securities are the book running lead managers for the issue and Karvy Computershare is the registrar. The issue closes on October 5.

The India Infoline report on Hanung Toys and Textiles IPO:

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At the lower end of the price band, it will trade at 12.6x multiple of FY07 annualized EPS of Rs 6.7, and at the higher end it will trade at 14.1x multiple. This is well in line with the other players in the industry. Subscribe to this issue.

Investment rationale

Expansion plans

The company plans to set up fresh capacities at Roorkee. This division would see a big leap with the processed fabric capacities going up from 6 million meters per annum to 41 million meters per annum post capacity expansion.

The real estate market size in India is Rs 800 billion and still does not truly reflect the future potential of the market. The market has been growing at a CAGR of 30% for the last two years and is expected to maintain that growth rate over the next 2-3 years. Hence there is good amount of visibility for decent volume growth in this segment. Besides, the growing popularity of malls and department stores would also boost up the demand for the branded segment.

Growing exports

More than 90% of its revenue comes from exports to various countries. It is not dependant on any one country or client for its order book growth as it has a well-diversified portfolio. As spinning mills all over the world are facing shut down it spells good news for countries like China and India.

After china, India has the largest spinning and weaving capacity. Hanung Toys is the largest manufacturer of stuff toys in India and hence stands to gain the most from the rising demand from other countries.

Improving margins

Hanung Toys and Textiles has enjoyed good margins due to tax breaks for the new project, increasing demand from domestic market, the low cost borrowing under TUF, cheap power and increased capacity utilization.

Hence, the margins for Hanung have improved from 6.6% to 15.6% From FY04 to FY06. The capacity expansions will help further improve the margins as the tax breaks and low cost borrowing make the new venture increasingly attractive. The new capacities will be commissioned in January 2007, hence FY08 will see stronger numbers.

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Concerns and valuation